TDS on Cash Withdrawals Under Section 194N

Short answer: Section 194N of the Income-tax Act mandates Tax Deducted at Source (TDS) on large cash withdrawals to discourage cash transactions. If you have filed your income tax returns, TDS at 2% is deducted on withdrawals exceeding ₹1 crore from a single bank or post office in a financial year. For those who have not filed returns for the previous three years, a lower threshold of ₹20 lakh applies, with higher TDS rates.

What is Section 194N of the Income-tax Act?

This section requires banks, co-operative banks, and post offices to deduct tax on cash payments made to any person from an account they maintain. The rule was introduced to track high-value cash withdrawals and discourage the cash economy. The limits and rates are designed to penalise non-filers of income tax returns more heavily, thereby encouraging tax compliance. The deducted amount is an advance tax that can be claimed as a credit against your final tax liability.

Who is responsible for deducting TDS under Section 194N?

The obligation to deduct and deposit the tax rests with the payer. For Section 194N, the payer is any of the following institutions where you hold an account:

• A banking company (public or private sector banks)
• A co-operative society engaged in the business of banking
• A post office

These institutions are required to monitor the aggregate cash withdrawals for each customer during a financial year and deduct TDS as soon as the threshold is breached.

What are the TDS rates and thresholds under Section 194N?

The TDS rate and applicable threshold depend on whether you have filed your Income Tax Returns (ITR) for the three preceding financial years. Banks have an online facility to verify the ITR filing status of their customers to apply the correct rate.

Feature	ITR Filer (All 3 Preceding Years)	ITR Non-Filer (Any of 3 Preceding Years)
TDS Threshold	₹1 Crore	₹20 Lakh
TDS Rate (₹20L - ₹1Cr)	Nil	2%
TDS Rate (> ₹1Cr)	2%	5%

This dual-rate structure incentivises taxpayers to file their ITR online regularly and within the due dates.

Does Section 194N apply to all types of accounts?

Yes, the rule applies to the aggregate of cash withdrawn from all accounts held by a person with a single banking institution. This includes withdrawals from:

• Savings Accounts
• Current Accounts
• Cash Credit (CC) accounts
• Overdraft (OD) facilities

The total withdrawal amount is calculated per bank, not per account or per branch. If you have a savings account and a current account with the same bank, the cash withdrawals from both will be combined to determine if the threshold is crossed.

Are there any exemptions from TDS under Section 194N?

Yes, TDS under Section 194N is not applicable if the cash payment is made to certain recipients. These include:

1. The Government.
2. Any banking company, co-operative society engaged in banking, or a post office.
3. Business correspondents of a banking company or co-operative society.
4. White label Automated Teller Machine (ATM) operators.
5. The Central Government may specify other persons in consultation with the RBI.
6. Traders or commission agents operating under an Agriculture Produce Market Committee (APMC) for making payments to farmers.

How can I check if TDS under Section 194N has been deducted?

You can easily verify any TDS deducted under this section through the income tax portal. The deducted amount will be reflected in your Form 26AS (Annual Tax Statement) and your Annual Information Statement (AIS). These documents provide a comprehensive summary of all taxes deducted and deposited in your name. You can use this credit to offset your tax liability when you file your annual income tax return. For a detailed comparison, see our guide on Form 26AS vs AIS vs TIS.

Worked example

Let's consider Mr. Kumar, a hardware store owner in Bengaluru, who has a current account with ABC Bank. His total cash withdrawals during the financial year 2025-26 (from 1 April 2025 to 31 March 2026) are ₹1.25 crores.

Case 1: Mr. Kumar is a regular ITR filer.

• Total Cash Withdrawals: ₹1,25,00,000
• Applicable Threshold: ₹1,00,00,000
• Amount Subject to TDS: ₹1,25,00,000 - ₹1,00,00,000 = ₹25,00,000
• Applicable TDS Rate: 2%
• Total TDS to be deducted by ABC Bank: 2% of ₹25,00,000 = ₹50,000

Case 2: Mr. Kumar has not filed his ITR for the past three years.

• Total Cash Withdrawals: ₹1,25,00,000
• TDS on amount from ₹20 lakh to ₹1 crore:
  • Amount: ₹1,00,00,000 - ₹20,00,000 = ₹80,00,000
  • TDS Rate: 2%
  • TDS: 2% of ₹80,00,000 = ₹1,60,000
• TDS on amount exceeding ₹1 crore:
  • Amount: ₹1,25,00,000 - ₹1,00,00,000 = ₹25,00,000
  • TDS Rate: 5%
  • TDS: 5% of ₹25,00,000 = ₹1,25,000
• Total TDS to be deducted by ABC Bank: ₹1,60,000 + ₹1,25,000 = ₹2,85,000

This example clearly shows the significant financial impact of not filing income tax returns.

Common mistakes

1. Forgetting to aggregate withdrawals: The ₹1 crore / ₹20 lakh limit applies to the total cash withdrawn from all accounts (savings, current, etc.) with a single bank, not on a per-account or per-transaction basis.
2. Ignoring the non-filer rule: Many individuals and small businesses are unaware that their TDS liability increases significantly if they have not filed their ITR for the past three years. This can lead to unexpected deductions from their accounts.
3. Assuming it doesn't apply to business accounts: Section 194N covers withdrawals from any account, including current accounts used for business. Business owners using presumptive taxation should also be mindful of this rule.
4. Not claiming TDS credit: The amount deducted is not a penalty but an advance tax payment. You must claim this amount as a credit against your final tax liability when filing your income tax return.

How SP & SC helps

SP & SC Legal and Taxation Services provides end-to-end tax compliance solutions for businesses and individuals. We assist clients in managing their TDS compliance, including advising on the implications of Section 194N, filing quarterly TDS returns, generating TDS certificates, and ensuring accurate tax calculations. Our proactive approach helps clients avoid unexpected tax deductions, prevent notices, and ensure they claim all eligible tax credits correctly. For assistance with all your tax compliance needs, explore our TDS Return Filing Services.

Frequently asked questions

H3: Is TDS under 194N applicable on cash withdrawal from a credit card?

Yes. If you withdraw cash from a credit card account or an overdraft facility, it is considered a cash payment from an account maintained by the bank and will be aggregated for calculating the Section 194N limit.

H3: What if I have accounts in multiple banks?

The threshold of ₹1 crore (or ₹20 lakh for non-filers) is applied separately for each banking company or post office. Withdrawals from Bank A are not aggregated with withdrawals from Bank B for TDS calculation purposes.

H3: Can I claim a refund of TDS deducted under Section 194N?

Yes. This TDS is treated as an advance tax. If your total tax liability for the year is less than the total TDS deducted (from salary, interest, cash withdrawals, etc.), you will receive a refund after filing your income tax return. You can check your ITR refund status online.

H3: Does Section 194N apply to ATM withdrawals?

Yes. ATM withdrawals are a form of cash withdrawal from your account. They are included in the aggregate amount used to calculate the threshold for TDS deduction under Section 194N.

H3: What is the definition of a 'non-filer' for Section 194N?

A 'non-filer' is a person who has received a payment in cash and has not filed their income tax returns for all of the three assessment years relevant to the three previous years immediately preceding the year of cash withdrawal. The bank will verify this status before applying the lower threshold and higher rates.

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Navigating TDS rules can be complex. To ensure you are fully compliant and avoid excess tax deductions, it's best to seek professional advice. Share your documents with us for a confidential review, and we will provide a written fixed-fee quote for our services. At SP & SC, we handle all tax and compliance matters from start to finish. Contact SP & SC or message us on WhatsApp at +91 90356 74566.